The accounting rules for charities need to be “redesigned”, according to the Charity Commission.
Writing in the November issue of Charity Finance, Amie Woods, assistant director of accountancy at the commission, said there is a “fundamental barrier” in the way the current rules work.
“UK financial reporting standards applicable to charities are largely built around the needs of commercial organisations,” she wrote.
“Charities are expected to fit into systems designed for businesses, despite operating for entirely different purposes. That approach no longer makes sense.
“A business exists to generate returns for its owners or investors. A charity exists to create public benefit. Those different objectives require different ways of thinking about financial performance, accountability and success.”
Woods’ comments came in the light of a government consultation entitled Modernising Corporate Reporting.
One element of the consultation is whether not-for-profit organisations should have a different approach to financial reporting to commercial entities.
Woods said the commission believes the answer to this question is “yes”.
“The future accounting framework for charities should be redesigned to fully reflect how not-for-profits operate and the public value they create,” she wrote.
“It should build and act on the insights and knowledge developed from the Charities SORP. The redesign must recognise from the outset charities' distinct purpose, support public accountability and make full use of modern technology.
“Most importantly, it should be fit for the future.
“That means creating a framework that continues to be proportionate, is consistent, and digital first. It should support transparency and provide the information needed for effective regulation of charities, while avoiding unnecessary burdens by recognising the wide diversity of organisations that make up the sector.”
She concluded by saying: “The question is not whether change is needed. The question is whether we are ambitious enough to build a system designed for the sector’s future rather than constrained by its past. And for the millions of people who support, volunteer for and depend upon charities every day, that is a challenge worth meeting.”
The consultation is open until 30 November and can be found here.
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